Low Credit Scores May Dash Millennials’ Home-Buying Dreams

Nearly a third of millennials (ages 18 to 34) hope to purchase a home within the next year, but more than 40 percent may not have the credit to do so(1), according to a new TransUnion (NYSE: TRU) survey released today.

TransUnion’s survey of 1,843 consumers found that while 32 percent of millennials say they plan to buy a home within the next 12 months, 43 percent currently have a subprime credit score – defined as a score within the 300 – 600 VantageScore range.

“Credit scores are a crucial component of the home-buying process, impacting everything from the size of a mortgage payment to the interest rate on a home loan,” said Ken Chaplin, senior vice president for TransUnion®. “People with subprime credit may face financial barriers to homeownership, making it difficult for their dream home to become a reality.”

Millennials surveyed recognized their finances will impact their ability to become homeowners. When asked their primary concerns about the home-buying process, millennials said they are worried about having a low credit score (47 percent), not being able to fund a down payment (59 percent) and/or not qualifying for a low interest rate on a mortgage (56 percent), above all other concerns.

In contrast, the survey found older consumers’ intent to purchase a home better aligns with their financial standing. For example, 17 percent of consumers ages 35 to 54 said they plan to buy a home within the next year – the same percent that has a super prime credit score – an attractive trait for mortgage lenders.

Among consumers ages 55 and up, only six percent say they intend to buy a home in the next year, though 34 percent have a super prime credit score.

Chaplin says that potential buyers of all ages should take steps to prepare their finances for homeownership.

"The home-buying process begins well before you start looking for real estate,” said Chaplin. “A credit score, which significantly impacts the home financing process, is built on good spending habits and a pattern of responsible borrowing established over a lifetime.”

Chaplin offers the following tips to help navigate the financial aspects of buying a home:

Check your credit report first: Mortgage lenders will look at your credit score and report when you apply for a mortgage, so make sure you catch any issues before they do. TransUnion recommends checking your report three months before starting the home buying process to see if your score is in a healthy range and all your information is up to date.

Start planning early: Your credit score is built over a lifetime of spending. Keep an eye on your score and track how your spending habits affect it.

Build credit: Millennials with low or no credit should take steps to build a healthy credit score. This includes paying all bills on time each month and maintaining a low credit utilization ratio, which is a ratio of how much credit you use out of your available credit limit. Other ways to build credit include factoring existing payments into your report, such as student loans (automatically included) and rent (ask your landlord to report payments to TransUnion).

Do your homework: Research mortgages and interest rates to receive a competitive offer.

Set realistic goals: Putting down a larger down payment will lower your monthly mortgage payment, but don’t put down more than you can afford. Also keep in mind that you will need money for closing costs, including a home inspection, before you can purchase your home.

Keep an open mind: It may take time to build your credit and save enough money for a down payment. Even if your finances aren’t in shape for a home now, it doesn’t mean homeownership isn’t a realistic possibility for the future.

Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.